Having a net worth over $40 billion may command some authority and attention for one’s views on economics and taxation. But it should not buy one an exemption from basic logic, intellectual integrity, or consistency.

Such seems to be case with Warren Buffett, who yet again took to the op/ed pages of the New York Times this week to call for higher taxes on citizens earning more than $500,000. The idea that higher income people should pay more in taxes, whether born of a desire for greater progressivity and/or a desire to raise more revenue, is certainly a legitimate viewpoint. However, any serious person espousing such an argument should be expected to address several basic questions: What will the standard of fairness be? How is it to be determined that any particular income group is paying its “fair share?” And if taxes are to increase, whether to address the deficit or for “fairness,” what degree of negative impact on economic growth and investment is one willing to tolerate? Regrettably, the recent presidential campaign featured much demagoguery but few answers. Buffett is no more illuminating.

The so-called Oracle of Omaha begins by making the manifestly absurd assertion that tax rates do not influence investment behavior. Astonishingly, he claims that when he was a fund manager, “never did anyone mention taxes as a reason to forgo an investment opportunity….” “Only in Grover Norquist’s imagination,” Buffett derisively contends, do investors adjust their plans based on the prospects for taxation. Such statements defy economic logic. The amount and nature of taxation, whether of the income stream generated by a particular investment, or that levied on interim dividends or capital gains realized upon the disposition of an asset, must be among the many complex factors considered by any rational investor in assessing the relative merits of an investment opportunity. If this proposition is not self-evident to you, you can go straight to the authority himself.

Buffett has left extensive and contemporaneous documentation of his investment thinking going back five decades. And it is clear not only that he has always understood this fundamental economic axiom, but that tax considerations have been a critical animating factor throughout his business career. (Indeed, during the period when he was initially accumulating great wealth, Buffett was quite passionate about the desirability of low tax rates.) As early as 1963, he wrote a letter to the investors in his hedge fund, The Buffett Partnership, Ltd., in which he laid out some of the fundamental tenets of his investment philosophy as it relates to taxation. One was the following:

“I am an outspoken advocate of paying large amounts of income taxes – at low rates.”

He goes on to note that in the real world not all investors share his approach: “A tremendous number of fuzzy, confused investment decisions are rationalized through so-called ‘tax considerations.’” One would think this behavior has meaningful economic consequences in the aggregate. Buffett assures his partners that he is utterly disciplined and rational, though no less aware of the importance of taxation to investment results:

“My net worth is the market value of holdings less the tax payable upon sale. The liability is just as real as the assetunless the value of the asset declines (ouch), the asset is given away (no comment), or I die with it….Investment decisions should be made on the basis of the most probable compounding of after-tax net worth with minimum risk.” [emphasis added]

That oblique reference to giving assets away is highly revealing, and we’ll return to it in a minute. Scarcely a year later, the emerging star fund manager reported to his investors that the Buffett Partnership had sold some investments and thus would incur taxable realized gains (the quaint sum of $2,826,248.76 in total, as it turned out). But he assured them that virtually all of his gains qualified for long term tax treatment. “We make investment decisions based on our evaluation of the most profitable combination of probabilities. If this means paying taxes – fine – I’m glad the rates on long-term capital gains are as low as they are.” [emphasis added]

Sensitivity to tax rates and structures, if not extensive efforts at tax minimization, has been a consistent focus for Buffett. In 1990, he shared with his stockholders the sample of a letter he had sent to a business owner whose company was a prospective acquisition target for Berkshire Hathaway. In it, Buffett explained to the potential seller why it was essential that the seller’s family retain a 20% interest in their business:

“We need 80% to consolidate earnings for tax purposes, which is a step important to us.”

One can only wonder, whether the deal would have happened, and at what price, if the seller had insisted on retaining 21% or more.